The US economy grew a bit faster than first thought in the first quarter as demand for foreign goods fell and commercial building picked up, adding to evidence that the United States may stave off recession. The Commerce Department said on Thursday that gross domestic product grew at a 0.9 percent annual rate in the first quarter.
While sluggish, that marked an upward revision from the anemic 0.6 percent rate estimated a month ago and an acceleration from the fourth quarter's 0.6 percent gain. The revision reflected a narrower trade deficit as more domestic spending went to US-made goods, which helped offset a reduction in business inventories.
The data, which was in line with economists' expectations, could help persuade the Federal Reserve to shift its focus to inflation from flagging growth. The US central bank has lowered its key interest rate by 3.25 percentage points since mid-September to combat the economy's housing-led slowdown.
"The underlying domestic demand in the economy showed slight improvement. It's probably consistent with the Fed being on hold in June and several months after that," said Nick Bennenbroek, currency strategist with Wells Fargo in New York.
The jobs picture was more cloudy on Thursday as the Labour Department reported that claims for new jobless benefits rose slightly more than expected last week, while the tally of those still drawing benefits hit its highest mark in more than four years. Initial claims for state unemployment insurance benefits rose to 372,000 last week from an upwardly revised 368,000 for the prior week.
The GDP revisions comes amid other recent economic data that has been better than expected, including April durable goods orders and April retail sales outside of the automotive sector.
Also on Thursday, Costco Wholesale Corp the biggest US warehouse club operator, reported a 32 percent jump in quarterly profit as shoppers flocked to its stores for discounts on food and gasoline. But Sears Holdings Corp reported an unexpected loss as sales fell and mark-downs hurt margins.
Economists expect the second quarter to be the most difficult period for US growth this year as high food and gasoline prices and the ongoing housing correction saps consumer spending power. But federal tax rebate payments of up to $600 per adult that began reaching consumers at the end of April are expected to provide a lift, as are new tax breaks for business investment.
Investment in non-residential structures rose 1.1 percent compared with a 6.2 percent fall estimated last month. Inventories fell by $14.4 billion in the first quarter, compared with a previously reported $1.8 billion rise.
Many economists view this as a healthy sign for future growth, as new sales will be supported more by new production rather than by existing items on store and warehouse shelves.
Inflation data in the GDP report was mixed. The personal consumption expenditures price index for the quarter rose at a 3.5 percent annual rate, the same as the previous estimate. But the core PCE price index, which is closely watched by the Federal Reserve and excludes volatile food and energy costs, was revised lower to 2.1 percent from 2.2 percent.
IMPORTS, EXPORTS LOWER: The Commerce Department said imports of goods and services fell 2.6 percent in the first quarter, a sharp revision from the 2.5 percent increase initially estimated. But exports, a recent source of strength for the US economy, also were weaker than first thought, with the first-quarter figure revised to an increase of 2.8 percent from a 5.5 percent rise.
Residential investment also was revised to a 25.5 percent decline from a 26.7 percent decline previously. This was still the steepest drop since the fourth quarter of 1981, when it fell 35.1 percent. In its first estimate of corporate profits for the quarter, the Commerce Department said after-tax corporate profits rose 3.8 percent after falling 3.3 percent in the fourth quarter.
NEWSPAPER HELP-WANTED ADS UNCHANGED: The number of help-wanted ads in US newspapers was unchanged in April compared to March, but is down from April 2007, a private research group said on Thursday. The Conference Board said its index measuring help-wanted ad volume was unchanged at 19, and down from 29 a year earlier.
Help-wanted ads have declined in all nine US regions tracked in the last three months, with the steepest drop in New England, where ads fell 26.8 percent. The research firm surveys help-wanted ad volume in 51 newspapers across the United States each month.
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